Treasury and the IRS Release Proposed Regulations under FATCA and a Joint Statement with Other Countries Regarding an Intergovernmental Approach to FATCA Implementation
February 15, 2012
On February 8, 2012, Treasury and the Internal Revenue Service (the “IRS”) released a lengthy and detailed preamble and proposed regulations on the implementation of the Foreign Account Tax Compliance Act (“FATCA”), which was enacted on March 18, 2010 as part of the Hiring Incentives to Restore Employment Act. Accompanying the proposed regulations was an historic joint statement from the United States, France, Germany, Italy, Spain and the United Kingdom regarding their intention to develop an intergovernmental approach to FATCA implementation.
The proposed regulations and joint statement are a welcome and forthcoming response to many of the principal concerns expressed by the financial services industry and other commentators regarding FATCA. The proposed regulations provide a clear and detailed picture of many (but not all) aspects of FATCA and a phased implementation of the due diligence, reporting and withholding rules.
Our preliminary assessment is that while the proposed regulations take several significant steps towards ensuring that FATCA can be implemented successfully by the IRS and the financial services industry, it will be a challenge for both the IRS and the financial services industry to meet the current timeline for its implementation. Furthermore, the FATCA implementation regime that is envisioned in the proposed regulations remains complex, and will be costly and burdensome to implement for many financial institutions.
The attached memorandum provides a more detailed summary of the principal implications of the proposed regulations and the joint statement.